Julien Grout, a former JPMorgan Chase & Co. (JPM) trader indicted yesterday in connection with a $6.2 billion trading loss last year, will be proven innocent, his attorney said.
Grout, who reported to Bruno Iksil, was “totally dependent on Iksil’s instructions and relied in good faith on his expertise,” Edward Little, a partner at Hughes Hubbard & Reed LLP, said today in an e-mailed statement. Iksil, known as the London Whale because of the size of his trading portfolio, is cooperating with prosecutors and hasn’t been charged.
Grout, 35, who moved to his native France from London earlier this year, faces as long as 20 years in prison if convicted. The indictment against him and Iksil’s boss, Javier Martin-Artajo, listed five charges against each of them, including securities fraud for allegedly manipulating marks on trades to conceal mounting losses.
“It is astonishing that the prosecutors are relying on Iksil’s testimony when he is the one who taught Mr. Grout how the bank was marking the portfolio, gave specific instructions on where he should mark positions, and personally approved the marks on a daily basis,” Little said in the statement.
The government’s strategy “can only be explained by the political pressure” the U.S. Justice Department faces over the trading debacle, he said.
JPMorgan agreed to pay more than $750 million to end U.S. and U.K. regulatory probes of the trading loss, people familiar with the matter said yesterday. The Securities and Exchange Commission, Office of the Comptroller of the Currency, Federal Reserve and the U.K.’s Financial Conduct Authority are preparing settlements with the New York-based bank, the people said. Accords may be announced as early as this week.
Grout’s lawyers and prosecutors haven’t reached an agreement on whether he should be released on bail, and under what conditions, if he decides to return to the U.S. to face charges, said a person with direct knowledge of the situation, who requested anonymity because the discussions are private.
Grout, Iksil and Martin-Artajo worked in London at JPMorgan’s chief investment office, where the wrong-way derivatives bets were made. The loss led to the departure of senior executives, including Chief Investment Officer Ina Drew, and spurred the company’s board to cut Chief Executive Officer Jamie Dimon’s pay by 50 percent.
Grout is accused of mismarking prices on the derivatives portfolio. The bank’s traders “had to estimate their fair market value, based not just on unreliable dealer quotes, but also on the prices of related securities, market conditions and the traders’ judgment,” Little said.
Martin-Artajo was on vacation when prosecutors unsealed charges Aug. 14, according to a statement that week from his attorneys at Norton Rose Fulbright LLP. He turned himself in to Spanish police Aug. 27, a police official there said at the time. Martin-Artajo was released on bail in Madrid and said he was unwilling to be extradited, a spokeswoman for the National Court said.
The case is U.S. v. Martin-Artajo, 13-cr-00707, U.S. District Court, Southern District of New York (Manhattan). The SEC case is Securities and Exchange Commission v. Martin-Artajo, 13-cv-05677, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Keri Geiger in New York at firstname.lastname@example.org